ACCA FA · Guided practice (Show me how)
Chapter 14: Statements of Cash Flows
Rohan - cash generated from operations, both methods
Rohan has the following statement of profit or loss for the year ended 31 December 2022:
| Revenue | 800,000 |
| Cost of sales | (560,000) |
| Gross profit | 240,000 |
| Distribution and administrative expenses | (150,000) |
| Net profit before tax | 90,000 |
The following are extracts from Rohan's statements of financial position:
| 2022 $ | 2021 $ | |
|---|---|---|
| Inventory | 90,000 | 108,000 |
| Trade receivables | 140,000 | 155,000 |
| Trade payables | 96,000 | 84,000 |
You are given the following further information:
Expenses include depreciation of $40,000, irrecoverable debts written off of $6,000 and employment costs of $55,000.
During the year Rohan disposed of a non-current asset for $9,000 which had a carrying value of $13,000, the loss on which had been included in expenses.
Rohan has no finance costs, so the net profit before tax is also the operating profit.
You are required to show how the cash generated from operations would be presented on the statement of cash flows, first under the indirect method and then under the direct method.
(a) The indirect method
Show how Rohan's cash generated from operations for the year ended 31 December 2022 would be presented using the indirect method.
(b) The direct method
Show how Rohan's cash generated from operations for the year ended 31 December 2022 would be presented using the direct method.
Opening this exercise…